CVS Health agreed on Thursday to acquire pharmacy services provider Omnicare for $10.4 billion to expand its footprint in serving the growing senior patient population. The deal, which is subject to regulatory approval, is scheduled to close near the end of the year.
CVS Health, the drugstore chain which changed its name from CVS Caremark in September of last year, is the biggest U.S. prescription drug retailer. Omnicare, one of the nation’s largest long-term care pharmacy providers, has been exploring a sale since April. Woonsocket, Rhode Island-based CVS’ offer of $98 a share in cash represents a 3.6% premium to Omnicare’s closing price on Wednesday. The deal is valued at $12.7 billion when $2.3 billion in debt in included.
In his book, The Dhandho Investor: The Low–Risk Value Method to High Returns, Mohnish Pabrai coined an investment approach known as "Heads I win; Tails I don't lose much." Q3 2021 hedge fund letters, conferences and more The principle behind this approach was relatively simple. Pabrai explained that he was only looking for securities with Read More
Reacting favorably to the announcement, shares of CVS gained 1.9% in premarket trading, while Omnicare’s shares gained 1%. Omnicare’s shares had risen 9.5% since April when news spread that the company was fielding takeover interest.
The latest deal would give CVS 160 Omnicare locations in 47 states across the U.S. where the drugstore giant can expand in the growing business of dispensing and managing prescriptions for a booming number of specialized drugs. The deal will also enhance CVS’ ability to dispense prescriptions in assisted-living and long-term care facilities. Besides revenue synergies, CVS anticipates that the deal will add 20 cents to its adjusted per-share earnings next year and become increasingly accretive after that.
CVS has secured $13 billion in fully committed unsecured bridge financing from Barclays and anticipates putting in place permanent financing in the form of senior notes and term loans before the closing of the deal.
In the U.S., the government has expanded health insurance under the Affordable Care Act by expanding Medicaid coverage to more poor Americans and offering subsidized coverage to eligible uninsured people via private insurance companies. Under the ACA, payments are more based on quality and costs, moving health care payments away from the traditional fee-for-service approach that leads to over-treatment and toward value-based medicine. Pharmacies are more involved in coordinating care and have to keep a close eye on costs.
String of acquisitions of PBMs
Thursday’s deal is the latest in a string of acquisitions of pharmacy-benefit managers. PBMs negotiate for medicines on behalf of employers and health plans. They have placed pressure on drugstores by negotiating lower prices on behalf of their clients and via mail-order plans that compete for prescription business.
As reported by ValueWalk, last March, Optimum Rx, a division of UnitedHealth, was purchasing the pharmacy benefits manager Catamaran in a deal valued at close to $13 billion. Catamaran manages more than 400 million prescriptions each year on behalf of 35 million people — or about one in every five prescription claims in the United States. The new company would be competing against other major pharmacy benefits managers, including industry giants such as CVS Caremark and Express Scripts.
Rite Aid unveiled in February that it agreed to buy pharmacy-benefit manager Envision Pharmaceutical Services for about $2 billion from investment firm TPG. Following the announcement, Rite Aid shares surged 9.76%.